Uruguay’s inflation-linked bonds are poised to climb from their lowest level in almost four years when the peso and other emerging-market currencies stabilize, according to AllianceBernstein Holding LP.
Consumer prices increased in July at the fastest annual pace in a year, making the inflation-linked securities attractive as a hedge for investors. While further weakness in the peso is a possibility, short duration may help make the inflation-linked bonds due in 2018 a buying opportunity, said Christian DiClementi, a money manager at AllianceBernstein.
“If we get confirmation of stabilization in emerging-market currencies, we would look to increase our exposure to this asset,” DiClementi said from New York.
The inflation-linked bonds maturing in 2018 fell 0.1 percent Tuesday, extending the slide this year to 2.3 percent. That compares with a 16 percent decline in Latin American debt linked to inflation, according to a Barclays Plc index. The peso was little changed after dropping Aug. 4 to a decade low of 28.625 per dollar as turmoil in China and Brazil triggered an emerging-market rout.
President Tabare Vazquez, who started his second term March 1, has pledged to lower inflation to between 3 percent and 7 percent by the second half of 2016. That goal looks increasingly out of reach as a weak currency helped pushed inflation to a 12-month high of 9.02 percent in July.
Uruguay’s Finance Minister Danilo Astori said earlier this month that the government is waging an “unrelenting” battle against inflation and will continue to intervene in the currency market if necessary to limit volatility. The central bank has sold $476 million on the spot and future markets since July 1 to slow the peso’s decline.
Current prices and yields of inflation-linked bonds offer an attractive entry point for long-term investors, said Juan Montero, who manages 54 billion pesos ($1.9 billion) at local pension fund AFAP Sura.
“Except for the near term, where there could be some volatility because of Brazil, I’m a little more optimistic about greater stability in the exchange rate,” Montero said in a telephone interview from Montevideo.